July 24, 2024
Aspiring lawyers interested in the intersection of practice areas like corporate, banking, and antitrust/competition law should follow the Virgin Money takeover carefully.

What’s the context of the Virgin Money takeover?

Nationwide have been seeking to take over Virgin Money for some time, leading to a great deal of discussion around the form the deal would take, and the potential challenges that might come with it. This would be, after all, the biggest banking deal in the UK since the financial crisis. 

Back in May, shareholders at Virgin Money voted in favour of the takeover with a huge 89% approval. As per UK company law, the general meeting required a 75% approval rate to pass (due to the type of resolution required).

Nationwide members did not receive a say in the matter since the law does not require it, although many journalists penning opinion pieces and outraged shareholders felt they should have been consulted anyway. However, at its AGM (annual general meeting) a few days ago, Nationwide members were asked to vote on practicalities innately tied to the deal, such as new pay packages for directors (who will be present in the combined bank), and 95% of shareholders approved. This was essentially seen as those shareholders giving their approval for the deal anyway (despite not being formally approved on the takeover itself). 

Initially, some of the discussions around the deal were based on the price point of 220p per share (the final total being approximately £2.9 billion). Some stakeholders, including Allan Gray (an Australian fund) were displeased with the announcement, and felt Virgin Money was selling itself short.

However, after the parent Virgin Group and founder Richard Branson threw their backing behind the deal, its completion felt almost inevitable. Branson himself stands to personally receive a payout of over £700 million as a result of the takeover – due to his 14.5% stake. 

The practicalities are as follows – Nationwide will initially just continue to run Virgin Money (under the Virgin Money brand name) for four years and pay £15 million in annual royalties. Then, following a lump sum payment (£250 million), they will gradually phase out the Virgin Money brand altogether, simply absorbing their activities into Nationwide. 

A deal of this scale naturally requires that Nationwide clear a significant number of hurdles, including sign-off from regulators like the Financial Conduct Authority. The focus for many lawyers following the case, however, is likely to be the Competition and Markets Authority, whose job it is to essentially limit the formation of monopolies in the UK (which leave consumers with less choice and therefore worse off). As we covered here on The Lawyer Portal, they notably put up strong resistance to the Microsoft Activision Blizzard takeover last year following concerns the gaming market would become significantly less competitive. 

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Why were the CMA investigating this deal?

In short, the scale of this deal means that the CMA were always going to take a close look. As already stated, the completion of the largest banking takeover in the UK since 2008 means lots of tension over whether there will still be enough competition in the markets which both banks previously operated in. 

To be more specific, the CMA were concerned about whether consumers would still have enough choice in areas like credit card providers and mortgage lenders (the new merged bank will be the second largest mortgage lender in the country). As part of this investigation, the CMA collaborated with the Financial Conduct Authority and Prudential Regulation Authority in order to understand the big picture. 

What should aspiring lawyers learn from the CMA’s decision?

There is a great deal here to unpack for aspiring solicitors or barristers applying to opportunities within the legal industry (think training contracts, pupillage, etc). To be clear, this is a huge deal which has been plastered across mainstream news outlets, and within the legal industry in particular there is a great deal of buzz around this takeover – it is likely if brought up at interview, for example, that your interviewer will consequently have a decent amount of knowledge around the subject anyway.

From the perspective of a commercial law firm, future trainees need to have a solid level of commercial awareness. This story is innately very commercial, and there are a range of points you could mine here which are not explicitly legal. For example, Nationwide were not required by law to consult their shareholders directly about the takeover, but using a ‘common sense’ business perspective, it may be worth considering how opting not to consult them looks in terms of PR. You might also think about the reputation both brands have, and how consumer trust is likely to transfer across to the new brand – this is already evident from the fact that Nationwide are paying £15 million per year to hold onto the Virgin name for a while before phasing it out. 

There are also a number of more directly legal issues at play here, which can be best characterised by practice area. First, corporate law permeates a number of points here. Consider the types of formalities under UK company law which need to be followed when going through this process, for instance (like the voting regulations). Closely tied to this are the specific teams associated with M&A (mergers and acquisitions) – often one of the most profitable areas for big law firms like those in the Magic Circle or elite US group.

Second, consider the competition law issues present here (often forming part of the public teams within law firm environments). There are a number of more niche directions you could also take the discussion. For example, employment law (how will the staff contracts move across when the bank is taken over?) or intellectual property law (note the continuation of the brand name, logos, etc in order to maintain consumer confidence). In short, there are a huge range of perspectives you could apply to this story as part of your applications.

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